Slovenia to avoid bailout, not like Cyprus: ECB's Kranjec

BLED (Slovenia) (Reuters) - European Central Bank Governing Council member Marko Kranjec said on Friday he was very sure that Slovenia would not follow in the footsteps of Cyprus, which is struggling to secure an international bailout to stay afloat.

Banks in Slovenia are nursing some 7 billion euros ($9.05 billion) of bad loans, equal to about 20 percent of GDP, underpinning persistent speculation that the country might have to follow other vulnerable euro zone countries in seeking a bailout.

Asked by Reuters at a business conference on Friday whether Slovenia could avoid a bailout, Kranjec said “Yes”.

“I am very sure that we (Slovenia) will not get into such a situation (as Cyprus),” Kranjec, who is also the Bank of Slovenia governor, told reporters on the sidelines of the conference.

“The size of the Cypriot banking sector is eight times its GDP and that shows that such serious conditions cannot appear in Slovenia,” he said.

Kranjec said there had been no unusual withdrawals from Slovenian banks over the past week despite the bank run in Cyprus after the EU demanded the introduction of a levy on bank deposits as a condition of a bailout for the island.

Cypriot lawmakers’ rejection of the bailout plan has left Cyprus scrambling to secure funds to avert financial meltdown.

“We are following what is happening and all is normal (in the Slovenian banks),” he told Reuters.

Kranjec said he expected Slovenia’s fiscal consolidation efforts would increase foreign investor trust in the country and enable it to tap international markets.

DEFICIT TARGET UNCLEAR

Slovenia’s parliament voted in a new center-left government led by Alenka Bratusek on Wednesday, after Janez Jansa’s conservative administration lost its majority in parliament in January following a corruption scandal.

The new government has not yet said whether it would stick to its predecessor’s plan to aim for a budget deficit of 3 percent of GDP this year, down from 4.2 percent in 2012. However, the plan did not include state spending on the troubled banks.

The International Monetary Fund said on Wednesday it expected Slovenia would need to recapitalize its three largest banks, which are majority or largely state owned, by 1 billion euros this year, which would boost the deficit.

Slovenia managed in October to issue its first bond in 19 months, at a yield of 5.7 percent, and former Prime Minister Jansa said on Thursday it should issue more bonds by June 6 to avoid financial problems.

The new government has not yet announced a timeframe or the size of planned issues but the IMF has said it expects Slovenia would have to borrow at least 3 billion euros this year.

The yield on Slovenia’s 10-year bond, issued in January 2011, rose to 5.46 percent on Friday, up by 0.2 percentage point from Thursday, according to Reuters data.